The government offers tax benefits to incentivize activities and saving for healthcare is a big one. There are two main options to consider: FSAs (Flexible Savings Accounts) and HSAs (Health Savings Accounts).
FSAs allow you to contribute pre-tax dollars from your paycheck to cover qualified medical expenses. While you get an upfront tax deduction, there's a catch: it's a use-it-or-lose-it account. Any unused funds at year-end are forfeited, typically with a rollover allowance of around $600.
If you don’t use it - you lose it!
FSAs are a good fit if you have predictable medical expenses throughout the year. However, if you're unsure about your healthcare costs, the "use-it-or-lose-it" rule can make FSAs less appealing.
HSAs are paired with high-deductible health plans (HDHPs). To qualify for an HSA, you must have an HDHP, which means a higher deductible you'll pay out-of-pocket before your insurance kicks in. However, HSAs offer significant advantages:
HSA : TRIPLE TAX ADVANTAGED
HSAs are considered "triple tax-advantaged" because your contributions are tax-deductible, the money grows tax-free within the account, and withdrawals for qualified medical expenses are tax-free.
Unlike FSAs, HSAs allow you to invest your contributions, growing your healthcare savings significantly over time. Remember to Invest! Many people neglect to invest their HSAs, missing out on valuable tax-free growth.
HSAs aren't just for medical expenses. Once you reach retirement age (59 ½), funds can be withdrawn for any purpose, similar to an IRA, but with continued tax advantages.
HSAs are ideal for those in good health who can manage a higher deductible. They're also a good option if you're planning for future healthcare needs and want to maximize your healthcare savings. If you choose an HSA, prioritize investing your contributions to leverage the tax-free growth potential.
An HSA offers a unique strategy: you can pay for medical expenses out of pocket, keeping receipts. Then, later (even years later) you can reimburse yourself from your HSA using the saved receipts. This allows your HSA funds to continue growing tax-free while you wait for reimbursement.
Recap
FSAs offer a tax benefit for current medical expenses, but with a "use-it-or-lose-it" restriction. HSAs are more flexible, allowing tax-free contributions, tax-free growth, and tax-free withdrawals for medical expenses. HSAs also convert to a retirement account with continued tax benefits. While HSAs require an HDHP, the long-term tax advantages can be significant, especially if you invest your contributions and utilize the reimbursement strategy. If you're in good health and have a long-term outlook on your healthcare savings, an HSA may be the smarter option.
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1 The material in this email does not provide tax, legal, investment, or accounting advice. This is not an offer to buy or sell any security or to participate in any investment strategy. The strategies and/or investments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
For 2026 you can contribute up to $4,400 with self-only coverage or $8,750 for family coverage (plus a catch-up if you're 55 or older). The triple tax advantage — deductible going in, tax-free growth, tax-free out for medical costs — is unchanged and still unmatched.
Talk it through with a licensed US tax professional — we'll tell you honestly whether it applies to your situation.
